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After the Bailouts, Will This Be the Market Bottom?

Posted Sep 19, 2008 03:03pm EDT by Aaron Task in Investing, Recession, Banking

Setting aside legitimate concerns about the ultimate cost and the debate over whether free market capitalism has a future, investors are wondering if an unprecedented level of government intervention has put a floor under the stock market.

In other words: Was that the bottom?

The early returns are good (for those long). After buying the rumor Thursday of a government plan to bail out banks Thursday, traders bought the news of said plan Friday -- and scrambled to cover shorts as the SEC's temporary ban went into immediate effect.

After jumping 400 points on Thursday, the Dow was up 347 points, or 3.2% in recent Friday afternoon trading, while the S&P was higher by 3.6% and the Nasdaq by 2.5%.

"It does feel -- and did feel yesterday -- like all the earmarks of a major bottom," are in place, says Tom Brown, chairman of Bankstocks.com.

Brown also runs Second Curve Capital, a hedge fund that only invests in financial stocks, has been net long for some time and was certainly enjoying the benefits of Friday's robust rally in bank and related stocks.

Whether the government's action prove successful long term remain to be seen.

In the near term, the Dow's significant rally off Thursday's intraday low of 10,459.44 "keeps the upper end of the trading range reachable," writes veteran technician Richard Suttmeier. "This is the 200-week simple moving average at 11,750."

But not everyone is embracing this rally.

"I have never woken up to bigger gains in my portfolio and they have never been less deserved," writes blogger and private equity investor Howard Lindzon.

Like many, myself included, Lindzon is concerned about the long-term implications of government interference in the financial markets on such a massive scale.

Finally, noting the Dow is on track for its biggest 2-day rally since 1929, Barry Ritholtz asks: "And how'd that work out for ya?"

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652 Comments

diamond phoenix
diamond phoenix - Friday September 19, 2008 03:12PM EDT

oh what a shock that the gov decided to not let a bunch of rich people live amongst the real working folks. but its ok, right, because the lower class that wiorks for minimum wage and has to spend an hours worth of work to buy a loaf of bread and a pound of meat can afford to bail out you stock market people; and i know how, tax us so we only get paid for a half an hor of work every hour instead of the 45 min we earn now, raise our milk, gas, bread and meat prices some more so our dollar dosent go a quarter as far as it needs to, and then cut the welfare budget and dip into the social security. Yeah we got your back. Hey white house, if my small buisness fails, you got my back like that too, right??????

Yahoo! Finance User
Yahoo! Finance User - Friday September 19, 2008 03:22PM EDT

Let's here it for FDR and the policies he put in place after the last Republican lead financial disaster.

Yahoo! Finance User
Yahoo! Finance User - Friday September 19, 2008 03:25PM EDT

Not everyone who is in the market is rich and I wish that would be brought up more often. Just because you invest in the market does not mean you make tons of money. Some people just do it to try and save for the future, for potential job loss, for health issues and do not deserve to have to lose their money just for trying to think ahead and live for the day only. All markets have ups and downs, but do feel that all of those cheating in the market and lying about their businesses that we invest in deserve to go to jail and have their families live with the stresses of worrying about their money and their futures.

Ray
Ray - Friday September 19, 2008 03:25PM EDT

Right on diamondphoenix1997! When the poor get poorer, the government just lets it happen. When the rich get poorer, oh no. They just won't sit by and let THAT happen. Even this bailout for the rich will come and bite the rest of us schmoes in the butt.

__A_YAHOO_USER__
__A_YAHOO_USER__ - Friday September 19, 2008 03:31PM EDT

The federal reserve is supposed to be free from political influence, How about that for a change. There where politicians all over the federal reserve. Are there any rules that are being kept????????

Tanya
Tanya - Friday September 19, 2008 03:31PM EDT

It's funny all I hear is blood in the streets, HEY the food pantries in the country have been empty for a year or sooo, but I guess the rich can't live without their cavier, so we better step in, right. Come on, I don't feel sorry for the poor billionares that might not make any money, and might have to dip into thier savings to pay for their gilded homes, the differnece between the 1920's and now, is the RICH don't get to learn any econmic lessons, the middle and low class get to take those classes for them. CHEATERS.

Yahoo! Finance User
Yahoo! Finance User - Friday September 19, 2008 03:34PM EDT

Will this be the bottom? Oh, definately. Lets see: Foreclosures will still continue, oil is still relatively high, as is unemployment. HELOC loans (what propped up the economy for the last decade) are virtually a thing of the past. The only ones that benefit from this are the banks. Anyone who thinks that the DOW will hit 14k now has rocks in their heads.

Yahoo! Finance User
Yahoo! Finance User - Friday September 19, 2008 03:34PM EDT

Will this be the bottom? Oh, definately. Lets see: Foreclosures will still continue, oil is still relatively high, as is unemployment. HELOC loans (what propped up the economy for the last decade) are virtually a thing of the past. The only ones that benefit from this are the banks. Anyone who thinks that the DOW will hit 14k now has rocks in their heads.

coachrdp
coachrdp - Friday September 19, 2008 03:35PM EDT

I'm just worried about when the real bill comes due on my children. When has the government ever done anything better than private industry? It is Fannie May and Freddie Macs fault so our governemnt rewards them for their bad management? Put the us back on the gold standard, a true measure and start drilling and building new refineries and developing alternative fuels and things will be just fine.

__A_YAHOO_USER__
__A_YAHOO_USER__ - Friday September 19, 2008 03:39PM EDT

Are we the old China?????? They have our capital, our manufacturing, our pollution, our influence, our middle class, Beijing will now be the financial capital of the world instead of New York,. We now have their political curruption, their poverty, no manufacturing, Social/ Communist politics, no middle classes. Are going to live on rice next???????

Yahoo! Finance User
Yahoo! Finance User - Friday September 19, 2008 03:41PM EDT

Let's really get this party rock'n. Give consumers a reload on their creditcards. Zero their balances and let'em go shopping...

Ed
Ed - Friday September 19, 2008 03:42PM EDT

Hell no. When is this going to stop. I'm responsible for my debts. If these instatutions take the risk they took, let therm bear the responsibility. As for the CEO's, fire them all, take away there perks and let them bail them selves out. And most of all let Uncle Sugar stop being Uncle Sugar.

__A_YAHOO_USER__
__A_YAHOO_USER__ - Friday September 19, 2008 03:42PM EDT

Hey yahoo finance user, isn't true that you only invest the money that you can afford to lose? I think the people who don't invest in the stock market can afford to lose anything, that's the difference.

Yahoo! Finance User
Yahoo! Finance User - Friday September 19, 2008 03:49PM EDT

All those facts are already priced into the markets, genius.

Paul D
Paul D - Friday September 19, 2008 03:53PM EDT

Like the man says, "when you have an economy based on flippin' burger, shuffling papers on Wall Street and suing each other, what do ya expect?" This expensive piece of wallpaper will make the market look good for a while, but it'll be headed south again before long.

agueybana
agueybana - Friday September 19, 2008 03:54PM EDT

For the rest of us, the government bail out may cost us dearly. Does anyone know what impact the bail out will have on our ability to create more jobs that provide a living wage? What about universal higher education and or universal health insurance? Will Social Security take a hit as a result of the bail out for the rich in this country?

St
St - Friday September 19, 2008 04:01PM EDT

well i'll be done I’m glad i watched all that, good luck with the future USA. i just watched a systematic economic re-configuration. Wow.......... thinking about other planets in sol system that might have water???? hmmmm

__A_YAHOO_USER__
__A_YAHOO_USER__ - Friday September 19, 2008 04:04PM EDT

I was floored when I heard that Fannie/ Freddie got bailed out. This recent one makes that one look like a walk in the park. 1 Trillion dollor bailout with the promise of more if they need it. DO YOU THINK THEY ARE GOING TO NEED SOME MORE???????

Yahoo! Finance User
Yahoo! Finance User - Friday September 19, 2008 04:06PM EDT

Unfortunately not. The Mortgage Banks may still be in business after they dump their loans. But the interest rates will rise for home mortgages as is the plan by the Administrators any way. This will drive prices of existing homes down even further. They don't want a fix they, they won't reap the fees for all these inside deals and administration of bad debt. They want to hurt the Tax payer as much as possible. Fleecing the lambs has never been so easy. At least at the Boston Tea Party they had some character and would not stand for abusive taxation. So who is to blame. We are for not standing up to the systematic abuses of the taxpayer and average American. keep crying and let the bullies of Wall St and Gov just steal your lunch, baby. Fighting for Freedom use to mean something.

Yahoo! Finance User
Yahoo! Finance User - Friday September 19, 2008 04:07PM EDT

Unfortunately not. The Mortgage Banks may still be in business after they dump their loans. But the interest rates will rise for home mortgages as is the plan by the Administrators any way. This will drive prices of existing homes down even further. They don't want a fix they, they won't reap the fees for all these inside deals and administration of bad debt. They want to hurt the Tax payer as much as possible. Fleecing the lambs has never been so easy. At least at the Boston Tea Party they had some character and would not stand for abusive taxation. So who is to blame. We are for not standing up to the systematic abuses of the taxpayer and average American. keep crying and let the bullies of Wall St and Gov just steal your lunch, baby. Fighting for Freedom use to mean something.

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